Soft data should feed gold and silver prices higher
OUTSIDE MARKET DEVELOPMENTS: Global equity markets overnight were mixed, with the number of markets trading higher barely exceeding those trading lower. Critical economic news included softer than expected Australian AIG construction PMI for January, better-than-expected Australian global composite PMI, better-than-expected Australian global services PMI, a larger than expected New Zealand rate hike of 50 basis points, much stronger than expected German factory orders, much stronger than expected French industrial output, better than expected Spanish and French global services PMI readings for March, softer than expected French global composite and services PMI readings, and a slightly disappointing Italian retail sales reading in February over the prior month. The North American session will start with a weekly private survey of mortgage applications, followed by the March ADP employment survey, which is expected to have a moderate downtick from February's 242,000 reading. The February US international trade balance is forecast to have a minimal uptick from January's $68.3 billion deficit. February Canadian international merchandise trade is expected to show a modest downtick from January's monthly surplus. The March ISM services index is forecast to have a mild downtick from February's 55.1 reading. Earnings announcements will include ConAgra Brands before the Wall Street opening.
GOLD / SILVER
While gold and silver are currently embracing flight to quality buying interest because of fears of slowing, too much slowing fear and/or disinflation chatter could begin to erode the bull case. On the other hand, seeing gold and silver stand up in the face of a 50-basis point overnight rate hike from the bank of New Zealand shows the bulls have residual confidence. With the gold contract regaining the $2,000 level for the first time in nearly 13 months, it is likely even more gains will be forged from disappointing US data in the days ahead. It should be noted that the coming 72 hours brings a veritable avalanche of global scheduled economic data, and clearly the trend of fundamental data for the US this week signals slowing instead of growth. While it appears as if gold is focused on economic uncertainty and lower prospects of further US rate hikes, it is possible that some of the gains in gold and silver prices yesterday were the result of the downside breakout extension in the Dollar Index. Regardless of the fundamental focus, the outlook from the charts has all the hallmarks of the early stages of a big rally for gold and silver. Unfortunately for the bull camp in gold, ETF holdings yesterday declined by 25,835 ounces, leaving them down 0.7% for the year. Fortunately for the bull camp in silver, the 1.7-million-ounce outflow from silver ETF holdings yesterday was preceded by very significant inflows in the previous five trading sessions. However, silver holdings year-to-date are down 0.2%. Some traders think small investor interest signals a looming top in gold and silver, while others simply see growing ETF interest as a sign of a broadening of the bull case. Shifting to longer-term charts, the next key pivot and target we see is $2,065.80 in June gold. The ability to regain the $25.00 level in May silver shifts longer-term trend signals up and creates the next upside target of $25.845.
PGM
With significant divergence between palladium and platinum yesterday, platinum remains the speculative choice within the PGM complex. However, we suspect both markets were held back yesterday following the softest US light vehicle sales readings since May 2021. Fortunately for the bull camp in platinum, the market has seemingly made the transition from physical commodity to flight to quality instrument. While not a major bullish development, platinum ETF holdings rose 933 ounces yesterday and are now up 1.4% for the year. The impressive upside extension yesterday projects July platinum to first resistance at $1,040.50 and potentially to secondary resistance of $1,050.10. Fortunately for palladium bulls, the market yesterday avoided aggressive selling from sagging physical demand fears. But unfortunately for the bull camp, ETF holdings yesterday declined by 3,813 ounces, reducing the year-to-date gain to 5.7%. We think the palladium market avoided aggressive selling because the spec trade holds a near record short and current prices are near the middle of the last 35 days’ trading range.
MARKET IDEAS: A trend of soft/disappointing US scheduled data appears to be in position ahead of three more days of significant economic reports. However, overnight global economic data saw a slightly better economic picture surfacing in Europe than has been seen recently in the US, and that should leave the dollar under pressure. At this point it could be difficult to dramatically improve US economic sentiment, resurrect the dollar, or push interest rates sharply higher without a major upside surprise in the US non-farm payroll report on Friday. Therefore, the bull camp looks to extend control, with gold potentially reaching $2,065 and silver testing $26.00.
COPPER
Despite some positive European data demand fear rules copper
Despite news that Chile's state-owned copper company saw its output in February drop by 15% relative to a year ago, copper prices this morning forged a fresh lower low and appeared on track to extend declines into the end of the week. While the market yesterday initially managed to hold up against deteriorating economic sentiment, sellers became aggressive after very disappointing news from US factory orders and job openings reports. With several global economic reports scheduled for release through Friday, copper prices are likely to remain in a downdraft. The problems for the bull camp are the lack of fresh news on the status of the Chinese economy and little in the way of production threats flowing from South America. We expect the fear of slowing and/or disinflation to promote additional speculative selling today.
MARKET IDEAS: Fortunately for the bull camp, the latest positioning report showed a minuscule spec and fund net long of 2,773 contracts in copper. With the market falling $0.14 since that data was collected, we think the position has shifted from a net long to a net short. Our current downside target is $3.9030.
